Digitimes resurrects some old rumors that Apple is working on a 7.85-inch iPad set to be released sometime in late 2012. This rumored device would be in addition to the iPad 3 Apple with a retina display that will likely arrive sometime in late March or early April.

Global shipments of tablet PCs are expected to reach 60 million units in 2011, of which 70% will be Apple’s iPads. To cash in on market demand as well as market expectations, Apple is expected to release its next-generation iPads at the end first-quarter 2012, said the sources.

However, in order to cope with increasing market competition including the 7-inch Kindle Fire from Amazon and the launch of large-size smartphones from handset vendors, Apple has been persuaded into the development of 7.85-inch iPads, the sources indicated.

Thus far, Apple hasn’t had any problems maintaining its dominance in the tablet market in the face of many competing products. But the recent release of the Kindle Fire seems to be selling quite well, despite less than stellar reviews. Clearly, leveraging the popular Amazon home page to hock the Kindle is a tried and true method for Jeff Bezos and co.

Note that the Taiwan-based United Daily News reported in mid-October that Apple had received samples of an iPad with a 7.85 inch screen featuring the same 1024×768 resolution as the iPad.

So are all signs pointing towards a mini iPad of sorts? Well, there are a few reasons to be skeptical.

First, Apple did a lot of research into what would be an ideal size for a tablet before ultimately settling on the current 9.7-inch iPad. Also, remember that Steve Jobs previously stated that 7-inch tablets would be dead on arrival. And up until the Kindle Fire hit the market, he was right.

Second, assuming an iPad Mini is indeed in the works, the pricing would be extremely interesting insofar as Apple has the base model iPad selling for $499 and its iPod Touch family ranging in price from $199 to $399. So how exactly would an iPad Mini even be priced?

We wouldn’t rule anything out at this point, but we think an iPad Mini at this point is more hype than substance.